Correlation Between OMX Stockholm and Crunchfish

Can any of the company-specific risk be diversified away by investing in both OMX Stockholm and Crunchfish at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining OMX Stockholm and Crunchfish into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between OMX Stockholm Mid and Crunchfish AB, you can compare the effects of market volatilities on OMX Stockholm and Crunchfish and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in OMX Stockholm with a short position of Crunchfish. Check out your portfolio center. Please also check ongoing floating volatility patterns of OMX Stockholm and Crunchfish.

Diversification Opportunities for OMX Stockholm and Crunchfish

0.31

Correlation Coefficient

OMX Stockholm  Crunchfish

Weak diversification

The 3 months correlation between OMX and Crunchfish is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding OMX Stockholm Mid and Crunchfish AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crunchfish AB and OMX Stockholm is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on OMX Stockholm Mid are associated (or correlated) with Crunchfish. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crunchfish AB has no effect on the direction of OMX Stockholm i.e., OMX Stockholm and Crunchfish go up and down completely randomly.

Pair Corralation between OMX Stockholm and Crunchfish

Assuming the 90 days trading horizon OMX Stockholm Mid is expected to generate 0.09 times more return on investment than Crunchfish. However, OMX Stockholm Mid is 10.68 times less risky than Crunchfish. It trades about 0.0 of its potential returns per unit of risk. Crunchfish AB is currently generating about -0.21 per unit of risk. If you would invest  165,347  in OMX Stockholm Mid on September 4, 2024 and sell it today you would lose (497.00) from holding OMX Stockholm Mid or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

OMX Stockholm Mid  vs.  Crunchfish AB

Pair Trading with OMX Stockholm and Crunchfish

The main advantage of trading using opposite OMX Stockholm and Crunchfish positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OMX Stockholm position performs unexpectedly, Crunchfish can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Crunchfish will offset losses from the drop in Crunchfish's long position.

The idea behind OMX Stockholm Mid and Crunchfish AB pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the CEOs Directory module to screen CEOs from public companies around the world.